On Holding AG — FY2022 Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2022; the filing also presents unaudited fourth-quarter comparisons. Financial statements are prepared under IFRS and reported in Swiss francs (CHF). On is a Swiss-based premium performance footwear, apparel and accessories company with one reportable segment.
Financial performance
| Metric | FY2022 | FY2021 |
|---|---|---|
| Net sales | CHF 1,222.1 million | CHF 724.6 million |
| Gross profit / margin | CHF 684.9 million / 56.0% | CHF 430.3 million / 59.4% |
| Operating result | CHF 85.1 million | CHF (141.1) million |
| Net income (loss) / margin | CHF 57.7 million / 4.7% | CHF (170.2) million / (23.5)% |
| Adjusted EBITDA / margin | CHF 165.3 million / 13.5% | CHF 96.4 million / 13.3% |
| Operating cash flow | CHF (227.0) million | CHF 16.9 million |
| Cash and cash equivalents at year-end | CHF 371.0 million | CHF 653.1 million |
Sales rose 68.7%, supported by growth across channels, regions and product groups. Wholesale sales increased 73.1% to CHF 777.0 million; direct-to-consumer (DTC) sales increased 61.4% to CHF 445.1 million. Footwear contributed CHF 1,167.5 million, or 95.5% of sales. North America accounted for 60.4% of sales.
Gross margin fell 3.4 percentage points, principally due to airfreight used to protect product availability and foreign-exchange pressure, including a strong U.S. dollar relative to the Swiss franc. Annual SG&A rose 5.0% to CHF 599.8 million, while SG&A excluding share-based compensation increased 51.8%; the lower reported total reflected share-based compensation falling to CHF 33.8 million from CHF 198.5 million in 2021.
Fourth quarter
Q4 net sales increased 91.9% to CHF 366.8 million, and gross profit rose 91.9% to CHF 214.6 million; gross margin was 58.5% in both periods. Operating result was CHF 14.7 million versus a loss of CHF 177.5 million. Net loss narrowed to CHF 26.4 million from CHF 187.0 million, despite a CHF 39.1 million net financial loss, including CHF 40.7 million of foreign-exchange expense. Adjusted EBITDA was CHF 61.8 million versus CHF 11.2 million.
Cash, liquidity and obligations
Operating cash outflow of CHF 227.0 million reflected a CHF 285.8 million increase in net working capital, including inventory growth of CHF 273.0 million. Year-end inventory was CHF 395.6 million, up from CHF 134.2 million; management said it included stock for expected 2023 growth and launches. Net working capital, as defined by the company, was CHF 459.2 million versus CHF 187.5 million.
Year-end cash included CHF 129.5 million of restricted cash pledged for a warehouse-related guarantee. The company reported CHF 170.0 million of financial liabilities, principally lease liabilities, and CHF 3.1 million drawn under overdraft facilities in connection with guarantees. Committed overdraft facilities total up to CHF 100.0 million, CHF 25.0 million and USD 35.5 million, subject to working-capital-based availability and covenants; the company reported covenant compliance. Contractual obligations totaled CHF 581.1 million, including CHF 282.9 million of lease commitments not yet commenced. Management said available cash, operating cash flow and overdraft facilities should meet working-capital and capital-expenditure needs for at least 12 months.
Changes, outlook and key risks
- The company returned to annual profitability after losses in 2020 and 2021. Adjusted EBITDA margin improved modestly, while gross margin declined.
- Management attributed growth to strong demand, new products and expanded wholesale relationships, alongside DTC e-commerce and store growth. Q4 supply and distribution disruption from COVID-19 was minimal, and the company resumed sea freight for most shipments; freight-rate volatility and inflation remained concerns.
- No specific FY2023 revenue or profit guidance is provided in the filing text. Management expects continued investment in marketing, inventory, distribution, product development, geographic expansion and retail. Share-based compensation expense was expected to be comparatively low in Q1 2023 and more evenly distributed over the remaining quarters.
- A new highly automated Atlanta fulfillment center is expected to become partially available in 2023 and fully available in 2025. Its lease-related commitments and guarantees are substantial; expected handling-cost benefits depend on successful implementation and scaling.
- Major disclosed risks include dependence on footwear and discretionary consumer demand; concentrated third-party manufacturing and sourcing, particularly footwear production in Vietnam; supply-chain, freight, inflation and currency volatility; inventory forecasting; competition and brand execution; and sustainability, supplier-compliance, cyber, privacy, tax and regulatory risks.
- Management and the auditor reported a material weakness in internal control over financial reporting involving segregation of accounting duties and review of journal entries and reconciliations. Remediation was underway but not complete at year-end; disclosure controls were also deemed ineffective. The auditor gave an unmodified opinion on the IFRS financial statements but an adverse opinion on internal-control effectiveness.
- The company reported CHF 126.1 million of guarantees in favor of third parties, up from CHF 2.9 million. It did not believe any legal proceeding outstanding at filing date was reasonably expected to have a material adverse effect.
- The dual-class structure gives the extended founder team approximately 59.7% of combined voting power as of year-end. The company does not expect to pay cash dividends in the foreseeable future.
Investor verification priorities
- Track inventory conversion, operating cash flow and receivables as sales growth continues; confirm whether year-end inventory supports demand without markdowns or write-downs.
- Assess gross-margin recovery and the contribution of freight, foreign exchange, product mix and pricing; note the unusually large Q4 currency loss.
- Verify progress and testing of internal-control remediation, including whether the material weakness is fully resolved in subsequent filings.
- Review Atlanta warehouse implementation, restricted cash, guarantees, lease commitments and facility covenant headroom.
- Monitor manufacturing diversification, supplier labor and environmental compliance, and exposure to Vietnam, trade restrictions and sustainability claims.
- Evaluate the distinction between IFRS results and management’s adjusted measures, including share-based compensation adjustments and potential dilution.